The government announced Rs 3 lakh crore collateral-free automatic loans for MSMEs but it is not so automatic on the ground. Many firms are complaining that banks prefer those with higher annual sales.
Rashtriya Swayamsevak Sangh (RSS)-affiliate Laghu Udyog Bharati (LUB) has already taken up the issue with Finance Minister Nirmala Sitharaman. It is slated to carry out a ground survey to find out if banks are following the government's directive in letter and spirit.
Also, it will assess the benefits reaped by struggling MSMEs of the Emergency Credit Line Guarantee Scheme (ECLGS).
Govind Lele, General Secretary, LUB, said that while public sector banks such as SBI and Bank of India are extending loans, private banks are still dilly-dallying.
"It has been observed that branch officials (of banks) are giving preference to high-value loan accounts so as to complete the target. Hence it is important that the instruction for proportionate sanctioning under the scheme is issued by the government," Lele said.
Surat-based Prashant Industries' Director Prashant Patel concurred and said that banks were hesitant in extending additional loans in case turnover of a firm was low or margins were thin.
"Banks are hesitant in giving loans to those firms which have low turnover and have less profit margin. It is true that 20% additional loan over and above existing outstanding is guaranteed by the government but banks would certainly be asked to explain before they get the money in case of a loan turning bad," Patel said.
DC Tripathi, Managing Director at NSD Glass Ltd said that he had availed the enhanced credit limit from Bank of Baroda (BoB) but he had to make "rigorous and all the required efforts" to secure the additional credit.
The Centre has cleared Rs 3 lakh crore collateral-free and government-guaranteed loans for MSMEs, traders, Mudra borrowers and other eligible firms. It was a part of the Rs 21 lakh crore stimulus package to help them tide over the ongoing coronavirus crisis. The emergency credit scheme covers existing borrowers with outstanding credit limit of up to Rs 25 crore as on 29 February, 2020 and having a turnover of up to Rs 100 crore. The borrowers are eligible for up to 20% of their entire outstanding loans as an emergency credit line.
The upper limit for interest rate charged by banks and financial institutions has been capped at 9.25%. For the NBFCs, the upper limit is 14%.
The government has been pushing banks to disburse more loans under the scheme and Finance Minister Sitharaman has been directly taking feedback from various stakeholders. She had last week rang up Laghu Udyog Bharati's Lele to take a ground report.
"I have also informed Hon'ble FM that we as Laghu Udyog Bharati are conducting a survey on the implementation of the ECLGS so as to gather the effectiveness of the benefits. It will be done in the week and the findings shall be shared with her for knowledge and action," the LUB General Secretary said.
As on June 5, public sector banks have disbursed Rs 8,320 crore under the Rs 3 lakh crore ECLGS for the MSME sector.
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